How long has the IRA been around?
IRAs were originally introduced to the public in 1974. However, the Roth IRA was introduced to the public in 1998.
Named after its sponsor, William Roth, the Roth IRA was the result of the Taxpayer Relief Act of 1997. You are able to hold the same types of investments inside the Roth that you can inside the Traditional IRA. These investments are most typically assets such as:
- Stocks
- Bonds
- Mutual Funds
- Certificates of Deposits
You have to have a custodian hold the account for you.
What is different about the Roth?
There are a few differences between the Roth IRA and the Traditional IRA.
- Contributions to the Roth are after tax dollars
- Earnings grow tax free
What do you mean Contributions are after tax dollars?
With a Roth IRA, unlike the Traditional, you are not able to take any tax deductions for the annual contributions.
Does the money really grow tax free?
Yes. The funds that you place into the Roth grow tax-free. You do want to leave the money inside the account in order to take full advantage of this tax-free growth. In a Roth you will be required to leave the earnings inside the account for 5 years and until you reach the age of 59 1/2 before you will be able to remove the money both tax-free as well as penalty free. However, do not be discouraged this is for your retirement. You want to leave all your retirement money alone and allow it time to grow.
Do I need a Roth or a Traditional IRA?
Your current tax situation may be the determining factor in answering this question. You want to schedule a time to talk this over with your financial advisor. There are a lot of things to consider when making this decision. You may need to look at your current tax situation, what do you think will happen to taxes over the long term, will they increase or decrease and many other factors.
While the decision may need to be made on if you need a Traditional IRA or a Roth IRA the truth is you need one of them. You have to take control and become involved in your retirement to ensure that all your financial goals are met. Your plan needs to include several different things. An IRA is a must!
Do I need a Roth or a Traditional IRA?
Your current tax situation may be the determining factor in answering this question. You want to schedule a time to talk this over with your financial advisor. There are a lot of things to consider when making this decision. You may need to look at your current tax situation, what do you think will happen to taxes over the long term, will they increase or decrease and many other factors.
While the decision may need to be made on if you need a Traditional IRA or a Roth IRA the truth is you need one of them. You have to take control and become involved in your retirement to ensure that all your financial goals are met. Your plan needs to include several different things. An IRA is a must!
1 comment:
Thank you for the information. I have been hearing a lot this year about the Roth and have been researching them to see if it may be the right type of account for me.
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